Security Deposits


  1. Create Liability Account in the "Customer Prepayments and Customer Credits" section and call it something like "Refundable Tenant Security Deposits"
  2. Create a Journal transaction with debit to Bank Account and credit to the liability account

"The landlord debits Cash for $1,000 and credits a liability account such as Refundable Security Deposits for $1,000"

If you put security deposits into a separate segregated account:

  1. If you don't already have it, create a new Asset Account (Type: Cash/Bank) in your Chart of Accounts to represent "Tenant Deposits Segregated Funds".
  2. Now in your Chart of Account, go to the Liabilities tab and create a new Liability Account in the "Customer Prepayments and Customer Credits" section. Call this something like "Refundable Tenant Security Deposits". Note that you can, if you choose, create a liability account in this category for each individual tenant, or you could aggregate the balance in one account and keep a separate spreadsheet record of what is due to each tenant.
  3. When you receive a Tenant Deposit, record it as an 'income' transaction in your Tenant Deposits Segregated Funds account. Categorize it to Refundable Tenant Security Deposits. You now have an offsetting Asset (funds in the bank) and Liability (obligation to refund tenant).
  4. In the event that you charge a tenant for repairs, I would recommend you create an invoice to the tenant, detailing the repair. Mark the invoice paid by adding a payment: make the Payment Method 'Other', and select the Payment Account to be Refundable Tenant Security Deposits - i.e. the liability account. (Obviously, if you run a liability account per tenant, pick the correct tenant.) This action will mark the invoice paid, and record the payment as income to your business; it will reduce the balance refundable to the tenant(s). The sum in your Tenant Deposits Segregated Funds account will not change.
  5. Record the actual repair cost as an Expense to your business, and pay it from the Tenant Deposits Segregated Funds Account (or transfer a proportionate amount from that account to whichever account you actually use to make payment. The above steps should keep all your Tenant monies and obligations clearly identifiable, distinguishing them from the operational finance of your business. Also, by invoicing each charge to the tenant's security deposit, you should have a decent paper trail when checking out the tenant and returning the residual deposit amount. Oh - and returning the deposit is simply a matter of cutting a check from the Tenant Deposit Segregated Funds

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  • 10 months ago by vince